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The Canadian Energy Regulator, formerly the National Energy Board, will delay a change proposed by Enbridge in the way it does business with oil producers that has angered these same producers.
Enbridge’s proposal, according to Reuters, involves a switch to fixed-volume, long-term contracts for 90 percent of the capacity on the Mainline pipeline network—the largest pipeline network that sends Canadian crude to the United States. The capacity of the network is 2.85 million barrels daily.
Yet producers are unhappy about it. Last week, Shell and Suncor approached the regulator to ask that it review Enbridge’s proposal and does so urgently. Earlier, MEG Energy and the Explorers and Producers Association of Canada also complained to the energy watchdog about the proposed change.
According to the producers, the terms of the open season Enbridge launched for its pipeline network would favor large refiners from the United States, such as BP and Exxon, over producers. Another cause for concern is that the long-term, fixed-volume contracts would force Canadian producers to send more crude to the Midwest rather than the Gulf Coast, which is a way more liquid market.
“Shell is concerned that the open season and the offering may represent an abuse of market power,” the supermajor’s Canadian subsidiary said in its letter to CER. According to the company, Enbridge is forcing producers to sign up for the fixed volumes under long-term contracts because they have few other export options due to the lack of sufficient pipeline capacity in Canada’s oil-producing regions.
Enbridge launched the open season for bids under the new terms in early August. According to critics, it should have first sought the approval of the regulator before announcing open season.
Now, the CER has announced a process of gathering comments on the Enbridge proposal and this process will almost certainly delay the switch to the new contract terms in case CER approves them.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.